Foundations of Consumption Theory

Literature Review

Literature about consumption theories is crucial in this chapter for discovering what would be a fundamental argument in conventional consumption theories. It starts with after World War 2, because Keynes was an academic who proposed macroeconomic concepts include consumption in one state economy, so-called aggregate earning. Also, this chapter we will analyze the theoretical development process in historical perspective with two research materials, which are empirical evidence, not matching with Keynes’s theory in a long-term period, and theoretical element to explain the fact with different aspects. And this chapter will serve as a foundation to build theorized the financialization consumption theory, including credit card usage. The reason why this chapter is mainly focusing theories before financialization era because consumption research related to a credit card are publishing is an ongoing process.

History of Consumption theory development

Before embarking on the influence of credit card usage in household consumption, it is fundamental to start with the historical development of consumption theories in conventional economy traditions. This chapter will shed light on the critical aspects of the consumption theories of development. This involves; household’s income, saving, and consumption in macro-economic level, like GDP. According to the Keynesian Aggregate Expenditure Model, aggregate expenditure defined by the added total amount of consumption (c), Investment (I), Government spending (G), and net foreign trade (export less import, F). The model represented the total income at the national level until Simon Kuznets made advancements on the Keynesian theory on Growth Domestic Product (GDP). Kuznet mainly focused on the economic analysis of a nation through the use of quantitative measurement (Kuznets, 2015). AE= C + I + G + F Currently, consumption (C) in the Keynesian model makes a considerable contribution to the overall aggregate expenditure. It covers more than 60 % of the current GDP in most nations. For instance, let's consider the case of the US (The Balance, 2019). The graph below illustrates the Share of personal consumption in US GDP from 1947 to 2013.

Furthermore, income is the main economic factor to decide the consumption level, excluding saving or other assets that easily liquidate. If income were leading aggregate expenditure, then the theory of income would be a theory, explaining about consumption in one state economy since consumption rate significantly depends on the income level in the household economy.

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Keynes, Absolut Income Hypothesis

Keynesian consumption function model was a starting point of modern consumption theory argument after World War 2. Theory of aggregate consumption function was developed in his ‘General Theory (1936). Keynes treated consumption in a pervasive sense level without mathematical theories or significant econometrics method. Besides, his theory did not include utility maximization perspective, and any consideration of consumer behavior, except, his mind of human nature. His argument didn't have support from numerical data, except for his detail of experience. However, Keynes put consumption theory in the middle of the macroeconomy. He also invented the idea of national income and production in his work, which compares with Kuzner’s work. According to Keynes (1936) work, consumption function model, aggregate consumption is defined by disposable income.

The consumption function equation

C = a + bY

The above function is represented graphically as follows;

Where 'a' represents autonomous consumption, which means consumption does not depend on disposable income like food while 'bY' represents inducted consumption that is affected by a consumer’s income level. 'b' is the marginal propensity of consumption (MPC), which means consumption increased due to an incremental increase in the disposable income level. From the Keynes’s MPC formula, if income (Y) increases, it follows that the marginal propensity of consumption will reduce.

b = ΔC/ΔY

Other chrematistic marks in Keynes’s consumption theory are First, when disposable income increases saving and consumption would increase.

0< C = MPA < 1

Secondly, when disposable income increases, the proportion of consumption (Aggregate percentage of consumption, APC) would be decreased.

APC > MPC

The model also suggests that as the level of income increases, the consumer spending too increases BUT at a lower rate compared to income. This simply means that people with high levels of income have a lower propensity to spend. As income increases, people can spend part of the income and save the rest.

Finally, Disposable income is the main factor of determination, nor interest rate.

To sum up, Keynes defines consumption in his ‘General Theory’ (1936), concerns only Marco economic perspective with simplified two different sorts of consumptions, which are autonomous and induced consumption. His research was based on psychological law “The fundamental psychological law, upon which we are entitled to depend with great confidence both a priori from our knowledge of human nature and from the detailed facts of experience, is that men are disposed, as a rule, and on the average, to increase their consumption as their income increases, but not by as much as the increase in their income” (Keynes 1936)

Kuznet, Consumption Puzzle

Before Kuznets research relationship on consumption and income in the long term period, from 1869~1934, it was a constant aggregate APC, Keynes’s aggregate consumption function had been accepted as a standard of consumption theory. However, Kuzner, an American statistics who won the Nobel price in 1971, offered statistical data arrangements for planning economy policies after depression by US department of commerce, proved that except depression period, APC in the US over the period from 1869~1938, was floating between 0.84 and 0.89 only. It was quite stable. Even the income increased lots, consumption kept a stable fraction of income. So consumption was proportion rather than income (Kuznet 1942). The Kuznet’s (1942) work was called Kuznet puzzle or consumption puzzle by Milton Friedman (1957). Kuznets puzzle became a piece of empirical evidence that motivated other economists who supported Keynes’s Absolute Income Hypothesis. Because the discovery disproved, that consumption heavily depends on income earning in Keynesian consumption theory. However, before Keynes in 1930s, there were many other economists that argued different sort of consumption theories like Ramsay (1928) work Keynes-Ramy’s rule: defining condition for rate of change in consumption (Blanchard and Fischer 1989.). And Fisher’s (1930) work ‘ Two Period Optimal Period problem’ that using the concept of future in building a consumption theory, which effects to Duesnburry’s relative income hypothesis, and Modigliani's Life cycle hypothesis.

• Fisher

Irvin Fisher’s (1930) “Two-period Optimum Consumption Problem” was built by two-time period, consumption in youth and old. Fisher's model illustrated how rational, forward-looking consumers choose consumption for the present and future to maximize their lifetime satisfaction. C = C (r, PV) Present consumption effects to not only present income but also future expected income. Fisher also argued that consumption level is effected by the interest rates, which is different compared with Keynes. In addition, Fisher argued consumption would effect to average income level rather than resent revenue. This 1930’s idea effected to Life cycle theory (1954) and relative income hypothesis (1949). When Modigliani and Duesnburry built their consumption theories after conventional economist clam with Kuznet’s puzzle. Compare with Keynes’s present concern income base; Fisher extends the consumption theory to the future timeline. This is important because of the adoption of the intertemporal view. The positive future expectation would open the door to accept credit as a common financial aspect in economy thought when present income is not enough.

• Duesnburry, Relative Income Hypothesis

After Kuznet’s puzzle, in 1949 the relative income hypothesis was developed to explain that consumption is related to habit formation and social interdependence (Duesenberry 1949). C = a Y + b [Yh/Y]Yz Duesnberry proposes an individual consumption function that depends on the current income of other people. And also consumption related to my present and past income level. “For any given relative income distribution, the percentage of income saved by a family will tend to be a unique, invariant, and increasing function of its percentile position in the income distribution. The percentage saved will be independent of the absolute level of income. It follows that the aggregate saving ratio will be independent of the absolute level of income.” (Duesenberry 1949) Relative income hypothesis that used demonstration effect as the main idea, also explains consumption pattern in a household with Irreversibility of consumption behavior. For instance, it is hard to spend less in a household which was once rich, even if it lost most of its wealth or income generating sources because there is a tendency to maintain a particular lifestyle.

• *Modigliani, Life Cycle Hypothesis

Another consumption theory that was influenced by Fisher's timeline concept is the Modigliani's Life Cycle Hypothesis (Modigliani and Brumbergh 1954). C = αW + βY According to Modigliani, consumption is depending on the value of whole life income rather than short-term income level. Also, consumption not only depends on income but also depends on the assets owned by the consumer. Household saving might be depending on the consumer’s age, and aggregate saving in society might be heavily influenced by proportion changing of the age group in the population. Life cycle hypothesis adds to two factors, saving and increase of assets value to explain long-term consumption function, which APC is stable. It is meaningful because the life cycle hypothesis explains that except present income, another source of income would support to maintain long-term stable consumption. Milton Friedman used the term temporary income to describe the second income source.

• *Friedman, Permanent Income Hypothesis

In 1957, Milton Friedman proposed the Permanent Income Hypothesis (PIH) that maintains that the households spend a fixed fraction of their permanent income on consumption. It became a standard consumption model in the conventional economy.

C = aYp just, Y = YP + YT

a-----------------------MPC

YP---permanent income

YT-----temporary income

The formula explains that household consumption depends on the average income expected in the future not income earning in the present. From this logic, temporary income would be saving, and permanent income will be consumed mainly. MPC out of permanent income is constant and equal to the APC in the long term period, which is consistent with Kuznets’(1946) empirical findings. The MPC is also the same for all households. But if Yp increases in the short-term period, because it is not consistent in the short term period, APC would reduce. Friedman’s PIH assumes that household would earn regularly. And temporary income would be saving in the bank. However, it is arguably the permanent income hypothesis in financialisation era, because there is uncertainty in employment, for instance, labor market flexibility has been increased (Reserve Bank of Australia. 2018, Flavin 1981). And the saving rate has been reduced until GFC and increasing until nowadays, so there is no evidence those consumers save their temporary income constantly in Financialisation era. PIH would be challenged in the next chapter with several unexpected variables (Flavin 1981).

• Tobin, Liquid Assets Hypothesis

It was Tobin’s theory, Liquid Assets Hypothesis, that suggest solving that household Liquidity constraint issue. From his doctoral dissertation (Tobin 1947a), household saving was the center of research. His contribution in the life cycle hypothesis is significant. He made several outstanding theoretical contributions (Buiter 2003). With Dolde (1971), the channel of potential monetary and fiscal Influences on consumption behavior are modeled including liquidity constraints. Both asset revaluations and liquidity constraints are shown to have potentially significant effects on aggregate consumption behavior. Tobin explains that consumption would be decided with income and liquid assets.

C = a + bY + cL

a-- autonomous consumption

bY—----------MPAC by income

c—---MPC by Liquidity assets

L-----------------liquidity assets

It is significant that conventional economic theory mentioned about Liquidity assets as a solution of liquidity constraint, because from the 1970’s advanced economy reformed by neoliberalism agenda, including financialization. It needs more research about the cause of the liquidity constraint. But it is obvious that income even saving could not be enough financial source for maintains household consumption. As a result, liquidity assets have pointed. And the consumption theory would be the theoretical framework to understand the assets market bubble, which started from the 1980s.

• Campbell and Deaton, Liquidly Constraints Hypothesis

In 1980s Liquidity constraint would be a main academic issue in consumption. Campbell (1987) argued that the saving rate would not be the only statistical signal to forecast future bed economy. This result of empirical research is significant because, in PIH, saving represent temporary income, but if saving did not affect to US consumption, it means IPH rationally, 1950’s consumption theory, would not explain real consumption in financialisation era. The significant academic contribution in liquidity constraint is Campbell and Deaton (1989) work. The empirical research proved that the proportion of consumers who have a liquidity constraint are 49 percent in the US. (Campbell and Deaton 1989). ΔCt = λΔYDt + (1-λ)ετ λ--------proportion of consumer have liquidity constraint It means less half of in 1980’s US consumer, who are working, suffered heavily by liquidity constraint to maintain basic consumption.

• Laibson, Immediate Satisfaction Hypothesis

In 2000’s argument about the consumption theories have been changed to focusing on a human behavior aspect. In Laibson’s immediate satisfaction hypothesis, the discount rate in each period would be below: βδi-1 but 1 > β > δ >0 It illustrates that first, the common consumer tends to save less and to consume more then they need because human beings are not strong enough to ignore consumption temptation. It means that consumers, financially, highly discount very recent present. From the logic, Laibson argued that first, present income would be influenced in present consumption. Secondly, there no coherence in the individual’s consumption pattern, and finally, the Government should force individuals to regularly save a certain amount of their income.

Conclusion

From Keynes's absolute income hypothesis (AIH), conventional consumption theories have been developed. First turning point was Kuznet’s empirical discovery that in long-term perspective AIH cannot explain relationship between income and consumption. It is reasonable to accept that after economic research would be nothing but understanding the puzzle by their own explanation. In the big picture the theories would classify by two analyzing aspects; timeline and liquidity constraint. From Keynes's simple present value concerned view, conventional economists divided analytical timeline to explaining income source to maintaining long term consumption, which Kuznet found or consumption behavior. It was Fisher who adopts the frame, he used the future as an analytical aspect, and then Modigliani built his theory base on the future expected income. Duesnburry used the past to built theory to illustrate the Irreversibility of consumption behavior. Friedman expected the consumer would receive the same stable amount of income in the future in his model. After Friedman, conventional theorist used liquidity constraint to built their theories. Tobin suggests purchasing liquid assets, Campbell and Deaton calculated population that suffered liquidity constraint. And Laibson explains consumer spend too much. However, the two aspects related to one fact in Keynes theory that assumes household income would be decided consumption level but empirical evidence shows it is hard to believe disposable income is enough to maintain empirical consumption.

Central argument: Temporary Income

This chapter would research a controversial issue in the consumption theories, which are the role of temporary income and liquidity constraint in the theories with historical and empirical perspective for claim conventional consumption theory development. Before the Kuznet puzzle, almost of empirical research, either cross-sectional or short-run time-series proved Keynes’s consumption theory. However, Kuznet’s work (1942) that subcontracted by the US government, which used long run-time series described that on the period, 1869 to 1938, APC fluctuated from 0.89 and 0.89, except depression. In other words, APC was approximately mean-reverted, such that even if income increased a lot, consumption kept almost a stable fraction of income; so consumption was a proportion rather than a function of income (Baykara and Telatar, n.d). It means even if there was an income fluctuation, still, consumption in aggregate earning, in GDP, would maintain a certain percentage. So people lies that consume is not depend on income. Kuznet puzzle (1942), consumption has been stably maintaining except during economic recession period. It has been an argument, how academics would explain the empirical fact? Income earning does not affect household consumption. Modigliani tries to extend the analyzing period to whole life rather than present income in present consumption only to illustrate the fact. And add one more factor household saving as a second financial source to maintain consumption (Modigliani and Brumbergh 1954). It was reasonable because from the graph below, until the middle of the 1980s, 10 percent of disposable income had been saved.

However, the extension to the future would have a weakness such as uncertainty of the future since the future does not exist until it arrives. Also reality shows that US saving rate in proportion of disposable income has been reduced from 11 percent in 1980 to 2.5 percentage in 2005. But disposable income and consumption have been increased according to the graph below.

Friedman (1957) called statistical research as a ‘, and use the fact as an assumption of his theory. It is six decades ago from now, 2018, but in 1950’s Kuznet puzzle’ was an empirical source to built many conventional consumption theories to explain the long-term pattern. First consumption theory extended their research period longer than Keynes. For example, on a personal level, life cycle hypothesis assumes consumption would be a long plan timeline, which includes a period that cannot earn income, retirement. So the role of saving would be the second financial source for consumption. Secondly, the permanent income hypothesis assumes that temporary income would be saved for retirement preparation (Friedman 1957). However, on another side, the PIH considers permanent income would be enough to maintain consumption. But the saving percentage reduced to 2.5 percent in 2008. So from the 1980s, the US consumption would not be a proper household retirement preparation. Or it is more reasonable to understand working class especially who were born in 1960, so start to earn income from the 1980s could not save like before generation, like a baby boomer. But they had another way to consume? In Keynes aggregate earning consumption function, financial sources of consumption are household income, but household could not get enough income but has to maintain consumption because it is autonomous consumption, another way might be spending consumer credit like a credit card. From the graph below, from the 1980s US consumer credit has been rapidly increased.

Tobin contributed distinguishable research about finance and consumption, including retirement fund research (Buiter 2003). Also, Campbell and Deaton (1987, 1989) lie that almost 50 percent of US household have liquidity constraint. It is a significant economic paradigm shift because saving could not support consumption any more which means from 1980’s US household consumption would be base on consumer credit like a credit card, and temporary income might be redefined. The main question at this point is how credit card would be a proper financial income? It is evident that under the assumption that economy has lower growth, US 3% in 2017 (Board of Governors of the Federal Reserve System. 2018), How consumer debt would be leverage consumption without increase default rate? Another limitation of the credit card system is that credit card debt back security would avoid bank default. So the minus temporary income providing system could not stop even if it is damaging household consumption power. Or consumer would be downsized consumption, like using alternative goods and service like 1-pound shop product.

Conclusion

It is evident that there is a lack of Marxian consumption theory about Financialisation era, due to political economists concern about capital accumulation or production rather than consumption. It does not mean there is no social and capital accumulation mechanism to resulting the situation. Still household is the last resource of credit payment. Also, income is a result of class struggle, which is a central concept of Political economy. From the logic, it is reasonable that income hypothesis, consumption theory research is indirectly related to political economy research. This chapter presents those two aspects of conventional consumption theory development. The first aspect was the extension time period in theory building, which relates to the future. It would be argued but even the character of a consumer in the economy is a rational decision maker, in philosophically and epistemologically, still the future is full of uncertainty. In fact, in reality, a human being is not always 100 percent rational. Building theory base on the uncertainty is arguable. Maybe that is the reason why Laibson focusing consumer behaviors rather than return form future, so-called discount rate, to explain his consumption theory. The second aspect was a liquidity constraint, which itself shows conventional consumption theory are not able to explain reality. From 1980’s Friedman’s permanent income hypothesis had limitations in explanation in financialization era, caused by unexpected consumption factor like liquidity constraint. Conventional economist used Tobin’s work as a solution. But finance has a fundamental issue to maintaining constant and stable price in the market economy. For example, the house market bubble would be supportable until a price drops down.

Transformation of Australian Household Income

According to Millmow (2015) golden age’ of Keynesian economic management is associated with the years 1945 to 1973 in Australia (Furphy 2015). However, the Keynesian consensus could not settle in Government policy with many policy errors. First, in 1950, Australia had to be a high investment economy rather than high consumption economy. Consumption had to be cut because of the immigration program, requesting massive housing and infrastructures construction expenditure. Copland argues that if consumption could not cut voluntarily, it would be reduced by taxation and some inflation (Furphy 2015). It was a high risk of building a high investment economy, namely lack of final demand would not eventuate, and that Australia could easily revert to a high consumption economy. So until 1973, Australian household consumption would be explained by AIH. It was driven by household income. The graph below describes net saving, total expenditure, and disposable income in Australian Household from 1960 to 2018 (Australian Bureau of Statistics 2019). From 1960 to 1973, there was no big difference between disposable income, consumption and saving figure. It is a typical Keynesian economic model concern about infrastructure construction rather than focusing consumption, and the trend finished from the beginning of 1970s from the graph (Australian Bureau of Statistics 2019).

From ABS data, total consumption has been rapidly increased from 1970s. And disposable income shows the same trend. Amount saving and gap between disposable income and consumption is approximately similar. It means saving had a function as a future income like life cycle theory lie until 2008 GFC. However, after the GFC, the saving rate has been increased. Compare with consumption. Also, disposable income has been increased since 2008. But there was no significant change in consumption trend. Because Australian Government used two stimulus packages, first one was $ 10.4 billion in October for maintaining household consumption, especially for paid to pensioners, carers, and seniors, and low-income households and the second one in January, for solve the consumption and housing problem (Kennedy 2009). However, from Kennedy’s speech (2009), the cash bonuses were causing an increase in the savings rate, which means that the cash bonus would be used to save a bank rather than spend. Australia is one of the western countries that running economy with a strong liberal economic system. According to the Index of economic freedom in Heritage foundation, the country ranked 5 in the world to economic freedom (2019 Index of Economic Freedom. 2019.). However, from the Reserve Bank of Australia Bulletin (2010), the county economy had a good condition in the 2008 GFC, causing by natural resource boom, leading by China. As a result, the government could efficiently react to the crisis. It does not mean that household consumption did not have a problem because the government stimulus packages would be tax payer’s money at the end of the transaction. Because of the efficient reaction of authorities; government treasury, and central bank, consumption had been maintaining the increasing trend (Kennedy 2009), but it was not free lunch. The financial authority has a tendency to focus only aggregate consumption, but not concern about a character of fund that spending for national demand like the character of household income, for example, credit; debt formed income (RBA Bulletin | March quarter 2010). Maintaining consumption by credit card is important to research subject matter because the negative income would be, in a long-term period, reduced or if users fail to manage spending more then payment capacity, the consumer would be permanently lost capacity to return to the former position in consumption market (Australian Government AFSA 2015). Campbell and Deaton explained that the credit card would be one of the solutions to solved liquidity constraint ( ). However, Australian household does not have a significant liquidity constraint compare with other developing countries, like Korea, Japan…..(Reserve Bank of Australia. 1996). From the research discussion paper 9602, because Australian household has high financial market accessibility, which causes by the liberalization of the financial market, there was less liquidity constraint (Reserve Bank of Australia. 1996). Australian household already has been financialized.

The graph below, describe the total amount of debt in household income. It shows that 2008 was a peak, A$ 50 Billion. It means even the government stimulus packages supported to the social weeks, credit card corporations increased their profit.

In some senses, credit was a temporary income in Australian consumption in GFC. It is reasonable that assume Australia had a good economic basement in 2000s, they provide credit would not be an issue because card corporations and Government authorities have high confidence to cover the crisis with debt. But financially nation’s wealth would flow out by card fee.

Conclusion

Australian household consumption pattern has been changed dramatically. Until 1970’s consumption in the Australian economy was not the main concern. It was a period to the rebuilt economy at the end of World War 2 by Keynesian censuses, which concern about Government spending for social infrastructure construction. So wage was stable at a similar level until the 1970s. So disposable income, saving, and consumption were not higher than another period. The trend changed from the early 1970s, disposable income has been increased, and consumption followed. The tendency to increase consumption was approximately 45 degree, like conventional consumption modeling, until 2008 GFC. During this period, saving had some function in consumption that lifecycle hypothesis and Friedman’s PIH explained. But also it is clear from 1970 consumption credit has been injected in the household economy. But the rocket increase of consumption credit injection started in 2003 and finished in 2008. After GFC, it reduced but still consumption debt is one increasing element of Australian household disposable income. From 1980s Australian consumption pattern shows a typical credit driven pattern, which is Campbell and Deaton’s liquidity constraint hypothesis. Amount of debt in disposable income has been increased at the same time saving has reduced and furthermore, from 2002 to 2005, the saving rate was negative. It means that Australian household has to have liquid assets as Tobin suggested rather than using saving for consumption. As a result, it is reasonable to argue that the role of consumption credit became a significant element in household consumption.

Australian Securitization Market

History of securitization can be tracked until the 1970’s United States. Government National Mortgage Association (GNMA), also called Ginnie Mae, issued first mortgage back security in secondly market (Barnett 1997). And soon Private Corporation that charted by US government, Fannie Mae followed the issuing mortgage back security and first issued collateralized mortgage obligation (CMO), which is more complicated but solving repayment risk of mortgage back security in 1983 (Barnett 1997). Todays, Real Estate Mortgage Investment Conduit (REMIC), which established by US Congress by the Tax Reform Act 1985, facilitate the all most of issuance of the CMO. First assets backed security (ABS) has been issued by Sperry Lease Finance Corporation in 1985. In Australia, the American securitization funding technique mainly performed by Banks (Bailey and Davies, 2004). The Australian Securitization has been dramatically evolved from the middle of the 1990s to the middle of 2000s. During the period, outstanding assets and liabilities increased approximately A$ 10 billion in 1995 to A$ 160 billion in 2004. The kind of assets that securitized had been widely extended (Bailey and Davies, 2004). The assets back securities have been issued to the local market and offshore market. According to Bailey and Davies (2004), since 2000, assets back bond were occupied over 50 percent of bond that issued. Issue of securities by another type of assets like commercial mortgage or trade receivable….so on increased more rapidly compared with residential mortgage back securities from Bailey and Davies (2004), It is hard to explain the growth only with housing finance in Australia. According to McCabe (2010), there were several reasons to use security in the bank and other financial institutions. “The process of selling the loans to a third party, rather than retaining them on their balance sheets, enables them to: manage their credit risk while continuing to maintain a relationship with the borrower; free-up regulatory capital so that it can be used more productively; and diversify their funding sources thereby enabling them to raise funds to finance new lending” (McCabe 2010). However, the market proportion of credit card back security is only two present, compare with back mortgage security, 98 percentage ( ) However, in 2008 GFC became a chance to think about the potential risk of assets back secularity. Kevin Davis (2009) pointing four points that attributed 2008 GFC (Davis 2009). First of all, the rapid growth of high leveraged financial products. It is arguably because the high leverage products are sustainable only when investors have confidence and the value of the assets have to increase for supporting the loan. The second reason was the growth of liquidity creation technic which lenders were believed their risk would not be significant. Next one was shadow banking system, including hedge funds that that supported to build complex financial instruments, which spread out the risk to the global financial market. Finally, it was the lack of risk information about the financial system for the public. It causes too many institutions to suspend credit in GFC, because of the inability to assess the risk positions of potential counterparties. As a result, they are compounding the crisis through the lack of liquidity in the market (Davis 2009). Fortunately, the Australian Government immediately involved the GFC for solving. According to Davis (2009), Reserve Bank of Australia injected liquidity to the market and guaranteed deposit and bank. Also, the government made an infrastructure project for easing 2008 GFC, and Australian securitization market has been hit hard during the period because of the avenue for a bond issue. And small lenders who were a force to leave security market, causing a return of high street bank, that changed market position, only fewer participants would lend mortgage and another form of credit. David (2009) lie that it is reasonable in post-GFC; the lender who left the securitization market should be returned to allow for increase market competition. From experience, it is obvious that the volatility of the security market is high, especially when the real economy stumbles. Due to the conservative environment of the Australian financial industry, still maintaining strong Keynesian style government involving policy implement in the market, 2008 GFC has been efficiently managed.

However, it does not means that the Australian security market is perfectly safe from such an economic disaster. This due to the concern that the Australian security market size is not significant compared to the leading financial market in the world, ranking 16 only (World Federation of Exchange. 2018), but it does not mean the character of the commodity is stable. Still, assets back security is suspicious item as a debt derivative that Borrows (2002) mentioned.